Monday, September 28, 2009

Japanese Governemnt Bonds - Yen Debt Bubble?

Here is a Monthly chart of the JGB performance.

Barron's magazine ran a story this week, which made the case the Japanese economy is a ticking debt time bomb (maybe the leader of a pack of time bombs across the industrialized world). Total population in Japan is falling fast, and falling even faster is the working age population to support Japan's massive debt to GDP ratio, measured officially at around 217%, that compares to 81.2% for the US and an average of 72.5% for the G-20 nations, according to Barron's. (blackswantrading.com/)

Interesting to me is how is it possible to maintain a debt to GBP ratio over 200% and still manage to market your massive debt. the chart shows that JGBs are in the 128 - 142 range for the last 10 years and still remain strong with all time low yields..

3 comments:

The main constituent of the Japanese debt market & equity market is that it is kept selfmaintained. Life insurance companies finance the governmen debt to match their liabilities (promise to pay for the pension/annuities which is currently set from the industry regulation body - FSA - at 1.5). The whole scheme will come into danger once the reliance on internal financing is not possible any more. That cld happen in case that the foreign inverstors (currently only 6% of the JGB's) would move away or Japanese retail investors start to seek higher returns. The government has some protection, because of the currency risk which easily wipes out profits if not managed professionaly. See also my webpage under www.japanesebonds.de

well now if the Japanese was to get out of the Lost decade is to create a debt bubble which is perpetuated on its on zero interest rate money creation -- then are we not seeing the same model now applied to the US?

last 10 years Asia credited the US for its consumer power to buy all the Asia's imports... now that consumers are trying to pay back credit - all the QE is going to re-inflate the asset prices but it's not transferring into consumption which means weak growth... then all the money creation of the Fed should be funneled into buying US debt to keep yields low - typically referred as 'Inflate their way out'...the risk is where?

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